Giving away control is something governments tend to do when they are new. With age comes jealous hoarding of power. Gordon Brown gave independence to the Bank of England within days of becoming chancellor in 1997. But by the end of his time in Downing Street, it would have been unimaginable for the government to surrender influence over, say, economic forecasts. Now George Osborne, fresh to the Treasury, has done just that.

There are clear advantages in having the parameters of the budget set by this independent account of our economic prospects. But forecasts are not policy prescriptions.

Expectations of future growth will not, in themselves, solve the dilemma over whether it is safe to start cutting the deficit immediately, or better to go slow in case premature austerity stifles the recovery. That is a tough judgment call, as the spectrum of views expressed in the Observer Focus today shows.

The choices to be made over the deficit are as much political as economic. They depend on the chancellor's beliefs about what state intervention can achieve and who should pay.

On the first point, the coalition position is clear: government should do much less. On the second point – where revenue will come from – the picture is more opaque.

The election campaign left no doubt that the Conservatives are ideologically bound to shrink the state. David Cameron reaffirmed that commitment in a speech, in which he warned of brutal times ahead for the public sector. Under Labour, he argued, the state grew out of all proportion to the private sector. The imbalance, he said, must be redressed, which "will be much more painful than if we had kept things properly in balance all along".

But neither Mr Cameron nor Mr Osborne has explained how hacking back an overgrown state leads to a spontaneous private sector renaissance. They are right about over-reliance on government for work.

Around a quarter of the national workforce is employed by the public sector. But, by extension, much private enterprise relies on contracts from public bodies or on public servants spending their wages on goods and services. The two sectors are mutually dependent.

Meanwhile, the rest of Europe – our main trading partner – is also emerging tentatively from recession and implementing austerity measures.

Who, then, will buy our exports? And where will domestic demand come from when government no longer subsidises jobs?

None of that is to deny the need for fiscal readjustment, but there are powerful arguments for proceeding cautiously.

The prime minister and the chancellor are good at advocating cuts and making that position sound radical. But the debate about how to consolidate the national finances is far too restrictive. There are broad strategic questions about the fairest way to share the burden of austerity that are hardly addressed.

If, for example, the welfare state is to be drastically cut, what value should be ascribed to the notion of universal provision? It is easy to look at certain payments – child benefit; winter fuel allowance; free bus passes and TV licences – and conclude that they should be withdrawn from wealthier recipients.

But means testing is itself a costly business and an intrusive one that deters many needy applicants from taking up their entitlements. There is also an unquantifiable cost in social division that opens up between those who get benefits and those who opt out of the welfare state completely.

Another approach to cutting, instead of trying to shave increments from many different budgets, is to keep some intact and scrap others entirely. There might be whole areas of activity from which the state can withdraw. Maintaining a nuclear deterrent is one government expense that might be disposable.

Another, less often cited, is the upkeep of a national road network. Privatising the Highways Agency would yield a massive cash windfall and lead to a much-needed discussion of tolls and congestion charging.

There are other taboos, just as powerful, to be breached, the issue of co-payment in the health service, for example, with wealthier users being charged for certain non-emergency services. The Conservatives have ruled the NHS budget untouchable, but in doing so have increased the pressure on other budgets. A truly imaginative approach to deficit-reduction would rule nothing off limits.

That principle must also apply to tax rises. Before the election, the Tories expected 80 per cent of deficit reduction to come from spending cuts.

Such an emphasis belies Mr Osborne's claim: "We are all in this together." Truer expression of that principle would require a greater emphasis on tax rises.

In opposition, the Lib Dems developed a sensible levy on expensive houses – the so-called "mansion tax". Sadly, it did not survive coalition negotiations.

Still less likely to be discussed is a rise in income tax. Although such a move would generate huge revenues, it is politically taboo for Tories. It was considered toxic under Labour too. Much of the deformity in the tax system was wreaked by Gordon Brown devising stealthy ways to raise money in compensation for headline-grabbing reductions in the basic rate of income tax.

David Cameron is always ready to point out how the fiscal consolidation ahead is unprecedented. But while he and the chancellor like to play up the scale of the crisis, they have not matched lurid language with bold ideas. They are better at drama than imagination. They mistake urgency for radicalism.

The public finances do need to be reined in. But the government would be well advised to go slower and think bigger.